|
PureBytes Links
Trading Reference Links
|
Entry, Exit, Money Management - it all matters.
The greatest exit or money management strategy in the financial world
won't save a trade that was entered at a wrong time. Enough of these
poor trades will eventually put the trader in the 80~90%
failed-traders group.
The confusion arises when inadequate or poor entry/exit combination
strategies are tested or compared. Profit (or a slow, agonizing loss)
then becomes dependant on money management (stoploss, position sizing)
.
"Substituting your entry system with a random entry such as the
outcome of a coin toss will make very little difference in the net
profitability of your trading system."
A random entry based on the outcome of a coin toss, will (on average)
give an entry signal every second day. An entry strategy based on
entering every available trading day will give similar results.
This is not what I consider a random entry mimicking realistic
trading. For a more realistic random entry, try the MetaStock random
trade generator at the Pegasus website.
"In fact, using a random entry such as a coin toss will most likely
improve system performance provided you have chosen a good position
sizing strategy because more trades will be taken compared with using
a deterministic trading strategy."
I disagree completely with David on this.
A bad entry set of rules (e.g., moving average/price breakouts that
get you into a trend too late, or an entry that is mismatched to the
exit, or an entry strategy mismatched to general market conditions)
compared to a random entry, well, yes, most likely the random entry
will then improve on this poor example.
"It also implies that positive outcomes for particular entry systems
or indicators,(pick up any copy of Technical Analysis of Stocks and
Commodities), are the result of selective or inadequate testing,
rather than being real."
I agree. Often system backtest results don't include transaction
costs such as brokerage, and very seldom do they include the
all-important slippage component, which can amount to several times
the cost of brokerage.
To summarize, there is a lot on this subject that needs to be
considered. Generally, a reasonably-balanced system is not likely to
be improved by random entry. I say this from personal experience.
jose '-)
http://users.bigpond.com/prominex/pegasus.htm
--- In equismetastock@xxxxxxxxxxxxxxx, "Andrew Tomlinson"
<andrew_tomlinson@xxxx> wrote:
>
> The talk of coin tosses brings up again the issue of whether entry
> strategies actually have any significance. I've just started with
> TradeSim, and I was startled by the implication that the choice of
> entry system has little or no impact on system performance.
>
> To quote from the manual: "Substituting your entry system with a
> random entry such as the outcome of a coin toss will make very
> little difference in the net profitability of your trading system.
> In fact, using a random entry such as a coin toss will most likely
> improve system performance provided you have chosen a good position
> sizing strategy because more trades will be taken compared with
> using a deterministic trading strategy."
>
> That's kind of a challenge for technical analysis. It implies that
> investment performance is all about portfolio structure and risk
> management and that entry rules harm more than they help. It also
> implies that positive outcomes for particular entry systems or
> indicators,(pick up any copy of Technical Analysis of Stocks and
> Commodities), are the result of selective or inadequate testing,
> rather than being real.
>
> What do you guys think?
> Andrew
>
> -----Original Message-----
> From: Jose [mailto:josesilva22@x...]
> Sent: Saturday, May 15, 2004 3:07 AM
> To: equismetastock@xxxxxxxxxxxxxxx
> Subject: Re: [EquisMetaStock Group] Event "Cancelled - Open Cost" in
> Enhanced System Test
>
>
> Chance of getting all heads or tails in:
> 5 coin tosses in a row: 3.125% (0.5^5)
> 7 coin tosses in a row: 0.78125% (0.5^7)
>
> 50 tosses, chance of getting:
> a single run of 5 coin tosses in a row: approx 27.2%
> a single run of 7 coin tosses in a row: approx 5.4%
>
> jose '-)
------------------------ Yahoo! Groups Sponsor ---------------------~-->
Yahoo! Domains - Claim yours for only $14.70
http://us.click.yahoo.com/Z1wmxD/DREIAA/yQLSAA/BefplB/TM
---------------------------------------------------------------------~->
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/equismetastock/
<*> To unsubscribe from this group, send an email to:
equismetastock-unsubscribe@xxxxxxxxxxxxxxx
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
|